What makes a company grow? The expansion of its customer base, the increase in revenue, and the production of more products, of course. But what drives all of this? The right people who enhance the innovation of processes and products. The challenge nowadays is precisely to find, hire, and retain these individuals. This is where Outsourcing comes in, not only as a strategy but also as a tool capable of supporting companies facing high levels of turnover, preventing them from focusing on what will enable them to grow.
But how does Outsourcing really work and what benefits can it bring to companies? That's what we'll explore in this article, along with the points that everyone looking to work with an IT Outsourcing partner in Portugal should consider.
What is Outsourcing?
After being widely used in other countries, Outsourcing, in general, has been growing in the national market. Simply put, it is characterized by the action of turning to an external provider (a third party) to meet a need, i.e., when a company hires another to perform a specific function.
It is widely used, especially in situations where there are not enough professionals for a particular role, hiring them is costly, or the function in question is something that is outside the company's priorities and focus. For example, a company may prefer to focus on tasks directly related to the development of its product/service and choose to outsource some responsibilities that fall outside that focus, such as accounting, marketing, human resources (HR), or even Information Technology (IT).
Thus, IT Outsourcing is a business practice that relies on using an external service provider specialized in specific software solutions, with the intention of leveraging a particular area of business within IT.
The purpose of this type of Outsourcing is to provide a highly specialized service in the form of deliverables or professionals (consultants) with the necessary skills to contribute effectively to clients' projects. In this way, in addition to expertise, Outsourcing provides greater flexibility to companies, allowing them to focus on the processes most relevant to their growth and enjoy the service for as long as they need it.
Are there different types of Outsourcing?
Yes and no. In reality, there are different models of Outsourcing, as clients can access both deliverables and consultants ("Time & Materials") through this service. Additionally, these services can be used as facilitators for the internationalization of the company if the service provider operates in another country.
If you prefer to delegate the entire management of your project and obtain a complete and functional team without major concerns, then the deliverables-based model ("Dedicated Team") would be most suitable. Here, you gain access to specialized know-how and can fully focus on your core business. This first model is the most common when thinking about Outsourcing since the entire function or department is managed by an external company. It can also be used as a way to expand or create a new business area or service, in an area where the company may not have much internal experience or knowledge.
However, if you prefer only to have access to highly qualified, specialized consultants who are often challenging to hire otherwise, the "Team Extension" model will be more appealing. With this, you can maintain full control of the technical development of the project, based on "Time & Materials." The significant advantage of this option is that you don't have to worry about bureaucratic processes associated with human resources management while getting access to the best specialists in the market. With this model, you can keep your internal team and complement it with certain professionals you need.
Another option available in the market for companies seeking assistance from a facilitator in the internationalization process is a model based on Nearshore or Employer of Record (EOR). In these cases, similar to the models presented earlier, the service provider handles all human resource management tasks and payroll processing, including recruitment, integration, benefits management, and offboarding, while staying fiscally compliant so that the client can avoid the legal and administrative complexities of establishing a local entity in a foreign country. Thus, the client company can reduce costs and access a broader range of talent quickly and easily, relying on expertise not only in technological terms but also regarding the specific legal procedures of the country in question. To gain more benefits, the client should engage an EOR whose operation is in the country where they want to expand to.
What are the advantages of IT Outsourcing?
Depending on the needs and goals of each company, this service can bring several advantages, such as:
More Efficient Use of Internal Resources and Access to New Areas of Expertise
One of the main benefits of Outsourcing, in general, is the ability to use internal resources more efficiently, freeing them to focus exclusively on the company's core activities. These services enable managers to address their hiring needs more quickly, allowing them to move forward with their current projects and concentrate all their attention on what truly matters: their projects and the company's growth.
Both the "Dedicated Team" and "Team Extension" models contribute to this. The "Dedicated Team" model provides an integrated solution where the client only needs to provide the requirements for what they are looking for, eliminating the need to spend time or resources on hiring, planning, or any other crucial step in project development. This model can also be used to add services and new areas of expertise that add value to the organization, with access to new technologies and specialized professionals.
In the "Team Extension" model, the advantage lies in not having to dedicate resources to the search, attraction, and retention of the best professionals in the market. Even if the client company has an internal HR department, the recruitment processes in the IT field are time-consuming and labor-intensive, adding strain to a department that already has other responsibilities and priorities.
Additionally, the client doesn't have to worry about any processes related to the consultant's career management (or even their replacement if they decide to leave the project), freeing up its structure for other relevant tasks. However, it's crucial that the selected partner company has implemented robust talent retention policies. In general, the client is freed from these types of concerns, allowing them to focus entirely on their business area.
Flexibility and Reduced Bureaucracy
Outsourcing services also allow companies to alleviate concerns related to the bureaucracy inherent to hiring and retaining the consultants chosen for their projects. This is a way for companies to increase their efficiency and production. The entire career management of consultants (onboarding, training, payroll, equipment, general well-being, and offboarding) is handled by the contracted company, allowing the client to focus their efforts on their own projects. The service provider also provides the necessary training to keep their consultants' technological knowledge as up-to-date as possible, ultimately benefiting the client.
Furthermore, Outsourcing offers greater flexibility to companies, allowing them to use the service whenever needed and, consequently, end it when they believe their needs are met. Another important point is that clients don't have to worry about the costs of hiring the selected consultants for the projects, as all these expenses are typically borne by the service-providing company.
This Outsourcing model also adds the advantage of more flexible growth for companies, enabling them to hire new members for their teams without pressuring their cost structure. When companies hire a new member, they assume an operational fixed cost to be paid monthly, the salary. Literature tells us that the higher these monthly fixed expenses are, the lower the ability to adjust to negative economic shocks. Thus, the weight of fixed costs in a company's cost structure may impact its investment decisions, market share, and financing costs, limiting its ability to maximize profit. When these costs are very high, the company's survival probability decreases.
On the other hand, the use of Outsourcing services can help manage companies' risk, as it represents a variable cost with the advantage of a more flexible and extended payment term (30, 60, or 90 days depending on what’s agreed). The variable costs of companies adjust as they grow, increasing and decreasing, which does not happen with fixed costs.
Therefore, companies gain financial leeway, allowing them to allocate capital, in the short term, to other investments more efficiently and reducing the pressure on operational fixed costs, while still having access to the best professionals in the market. These professionals are ultimately what will allow companies to continue innovating and growing.
On the flip side, consultants in an Outsourcing regime also benefit from the perks and benefits of their employer, including equipment (and faster updates), health insurance, training tailored to specific needs, events, support, career management, and often more attractive salary conditions than if they were directly integrated into the client company's staff. This can happen in client companies where salary progression is rigidly structured, or compensation is restricted to the base salary.
Outsourcing service providers, due to their concern for retaining consultants, can be more flexible in compensation and efforts to provide the best possible experience for them. Additionally, they offer a range of projects to their consultants that allow them to evolve professionally, even when projects with clients come to an end.
Greater Technological Know-How and Access to a Highly Specialized Market
It is undeniable that technology plays a fundamental role in companies' innovation capabilities, and an Outsourcing service provider can help its clients access the latest technological platforms without making as large an investment as acquiring them. Additionally, clients also benefit from the fact that these providers work with companies from various sectors and with different needs, providing them with greater experience and breadth of services.
Companies that turn to IT Outsourcing also benefit from the means and expertise of these service providers, which already possess the necessary knowledge to quickly analyze the market and find a professional suited to their client's needs (if they don't already have them on their staff and ready to start a new project). Due to their proximity to the market, they know exactly where the best professionals are and can reach them more quickly, as that is the focus of their activity. We know well that in the IT world, finding good professionals is difficult, whether due to the increasingly sought-after technical specialization, the introduction of new technologies, or the challenges in keeping up with the demands of these professionals.
Some areas where it is challenging to find professionals with the required experience include Data Engineering, Artificial Intelligence, Cybersecurity, Internet of Things (IoT), Connectivity, and Systems Engineering. However, Outsourcing service providers usually have databases full of candidates looking for new opportunities, so it's natural that they can send the first candidates in a short time, even in areas where talent is scarce. The ability to find, attract, and retain the best professionals in the market is thus a significant advantage for companies that continue to deal with this problem.
Safeguards and Guarantees
The relationship between the client company and the service provider is formalized through a contract that includes a Service Level Agreement (SLA), a document that aggregates all commitments between both parties, including service details, the requirements the provider must meet, and the metrics it is subject to.
These contracts help ensure that clients are safeguarded, knowing that the service will have a certain quality and meet specific standards, with room for penalties if this does not happen. The purpose of this document is to provide a guarantee that services will be provided as agreed and that the client will be compensated in the event of any situation affecting their project. It also creates security, trust, and alignment of expectations.
This contractual relationship is a great asset for client companies, especially those opting for a "Time and Materials" model, as it ensures that if the consultant decides to accept another job opportunity, they will have a quick replacement, and their project will not be affected. This type of action also comes into play whenever the consultant is unable to continue their functions on the project, such as in the case of extended absences.
The provider is contractually obligated, if demanded by the client, to replace the consultant and ensure the transfer of information between the departing and the new consultant assuming their functions.
Furthermore, the service provider also has an obligation to communicate the consultant's departure with a defined notice period (usually 30 days). For each day of delay in communicating this or replacing the professional, the provider may face associated penalties.
In the case of deliverables-based models ("Dedicated Team") where the Outsourcing company manages the team dedicated to working on the client's service or product, it may also have obligations related to meeting deadlines for deliverables, if something does not go as expected. This means that if there is an issue with the products or services provided, the provider has a certain period to respond, or it will incur in the mentioned penalties.
Does IT Outsourcing Have Disadvantages?
Certainly, and it's important to be aware of them to determine if this is the most suitable service based on your specific needs.
Potential for Higher Costs
Since it is an external service, it represents an additional cost for the company. However, it's also crucial to consider the advantages it brings and assess whether the cost is justified, both in the short and long term.
Another aspect to consider is the range of services the provider offers and the specific needs of the seeking company. If only access to the outsourcing company's market knowledge and its ability to quickly find highly qualified professionals is needed, perhaps a one-time Specialized Recruitment service is the solution – something these companies also typically offer.
On the other hand, if what’s needed is a search for a specialized professional or team to give a boost to ongoing projects, but there is some apprehension about hiring them directly without being sure if it will have a future, an Outsourcing service with the option to internalize consultants may be an interesting solution. This way, the client can also circumvent the possible loss of internal know-how, which is another disadvantage.
Another important consideration is the reputation that some outsourcing companies, especially in IT, carry. This type of service still has a somewhat negative connotation among candidates in this field due to a lack of awareness about the responsibilities and costs that service providers have, as well as the abusive profit margins that some companies practice in the market (even though this paradigm has shifted).
Within the sector, some of these providers end up offering lower compensation than expected considering the work of their consultants. While this situation can occur in various contexts, due to the nature of this type of service, many professionals tend to view outsourcing companies, and consequently the companies working with them, less positively. Alongside this situation (which does not represent the entire universe of outsourcing companies), there is also a lack of awareness about the actual responsibilities of these service providers (some of which were addressed earlier) and the advantages a professional has when working with them.
Fortunately, this situation does not apply to all service providers, and it is something these companies are actively trying to improve. However, it's essential for clients to be aware of this situation and conduct a detailed analysis of the conditions offered by the provider to their consultants, ensuring peace of mind regarding the potential loss of the professional.
Therefore, clients looking to use these services should seek information about the opinions of candidates who have been through processes with the provider to understand if the practices they use are the best or not. Checking testimonials on the provider's website and ratings on specialized sites like Glassdoor or Teamlyzer may be an option. However, it's important to note that these evaluations are not always the most fair and representative of reality.
Finally, another disadvantage to consider is the potential for internal division. This means that since not all professionals have the same employer and access to the same resources, events, among other things, there is a possibility of creating distinctions among team members.
This concern is shared by both clients and service providers. That's why the latter often closely monitors their consultants and clients to be able to intervene in case such situations arise. To overcome this issue, it's crucial to have strong collaboration between both companies and a genuine commitment from the provider to offer the best possible experience to its consultants.
As we've seen throughout this article, IT Outsourcing is a powerful tool that companies can use to innovate and grow while navigating the challenges of an increasingly competitive market. However, caution is necessary when selecting a partner company. The chosen provider should align with the client company's values to ensure a successful partnership.
If this service seems like the ideal solution for your company, talk to us so we can help clarify any questions and show you how we can assist in your growth.